A Little Goes A Long Way

Ask West Point-educated Charles L. Dokmo why he dedicates his
life to making tiny loans to struggling entrepreneurs in the world's
poorest countries, and he'll tell you about Bhavna in India.

The
24-year-old woman, recently widowed with a small child, could barely feed
her family from a meager income selling noodles by the handful, single
eggs and individual bouillon cubes in a storefront she set up in her
thatched hut. She was contemplating suicide.

Then, a community
organizer linked with Dokmo's Opportunity International group helped
Bhavna get a micro-loan of about $50 enough money to buy a few more
provisions, multiply her income and make ends meet.

"Now, she has
hope," said Dokmo, his eyes welling with tears.

From India to
Indonesia and even the United States, micro-finance is gaining ground,
expanding beyond its 1970s roots in small, nonprofit organizations to
include specialized programs at mainstream commercial banks and such
international finance giants as the World Bank.

Even governments
are jumping on board. Mexico's new president, former Coca-Cola executive
Vicente Fox, this year plans to launch a micro-loan program nationwide,
inspired by the success of a statewide program he started as governor of
Guanajuato state four years ago.

Advocates say micro-finance helps
free the working poor from the grip of loan sharks, who charge exorbitant
interest rates, or the rut of too little cash cycling through their
fragile businesses. Using creative loan guarantees, micro-lenders offer
small amounts of credit at decent rates to borrowers, whom traditional
banks long viewed as too risky and their tiny loans too expensive to
administer.

"It's more than just lending," said Dokmo, chief
executive officer of Oak Brook, Ill.-based Opportunity International,
which lends more than $40 million yearly, supporting more than 250,000
jobs worldwide. "I've seen women [in micro-loan repayment groups] in India
organize to get electricity, sewage and other basic services for their
communities. This also is about dignity and democracy."

Still, it's
an uphill climb for micro-lenders to reach the needy. The United Nations
estimates that half the world's population lives on less than $3 a day.
And while micro-finance is expanding fast, up 25 percent a year in some
countries, the tiny loans to the poor still account for less than 1
percent of all commercial lending worldwide, studies show.

To speed
outreach, the first Microcredit Summit, held in 1997 in Washington, D.C.,
set a goal to reach 100 million of the world's poorest with tiny loans by
2005, up from 7 million borrowers that year. Yet just that task will
require more than $10 billion in new funds plus training for thousands of
new loan officers.

"It's a simple idea, but hard to implement,"
said Sam Daley-Harris, director of the Microcredit Summit, noting that
hurdles also include limited public awareness of micro-credit. "An
earthquake makes news, not the tens of thousands who die of malnutrition
every day."

STARTED IN 1961

Lending money to the poor
wasn't always seen as a way to fight global poverty.

Accin
International, based in Somerville, Mass., and one of the world's largest
micro-lenders, had its roots in charity. The group started in 1961 after
an amateur tennis player from the United States, Joseph Blatchford,
visited Caracas, Venezuela, and was horrified by shantytowns
there.

Blatchford returned to law school in the United States and
mobilized classmates, friends and family to donate cash and time to do
Peace Corps-type community work in South America installing latrines,
building schools and training families in healthy nutrition.

But by
the 1970s, the group realized its efforts did not address the deeper
problem: lack of economic opportunity for the poor in a region with too
few jobs and virtually no welfare system.

So, Accin began to offer
low-cost loans to struggling entrepreneurs, folks who repaired cars or
sold fruit on the streets to eke out a living. The borrowers generally
lacked collateral, tax records or other assets sought by commercial banks,
but they agreed to organize with family and friends and fellow borrowers
to jointly commit to repay.

Over the past decade, Accin has loaned
more than $3.2 billion, mainly in Latin America, with loans averaging $500
each and due within months. Many micro-lenders have repayment rates that
top 96 percent better than most commercial banks that target less risky
clients.

"The group methodology works, because members cheer each
other on. That makes as much difference as the money," said Tracey
Talentino, a former Chase Manhattan banker who worked with Accin and now
helps run Micro-Business USA in Miami.

Accin is so committed to
the future of micro-credit that it's working with mainstream banks to
develop micro-loan programs big enough and efficient enough to break even
and maybe turn a profit.

"Micro-finance should be integrated into
the financial system, not marginalized, so it can be sustained and
expanded," said Robin Ratcliffe, Accin's vice president of
communications.

Today, few of the estimated 7,000-plus
micro-lenders worldwide cover all their costs, depending on donations from
governments, foundations and individuals for new
funding.

TECHNOLOGY

To boost efficiency,
micro-lenders are turning to technology. Some Accin loan officers, for
example, use wireless, handheld computers to check client records or enter
data on new borrowers. That cuts the time officers need to return from the
field to central offices, reducing administrative costs, Ratcliffe
said.

Borrowers, too, are embracing technology. In Bangladesh,
where Muhammed Yunis and his Grameen Bank group pioneered $1 micro-loans
in the 1970s, a novel program is bringing phone service to thousands of
villages.

Grameen and a European partner offer micro-loans for a
cellular phone to one experienced borrower per village perhaps a woman
who may have purchased a cow or a sewing machine and repaid Grameen
several times. The borrower buys phone time in bulk at a discount and
resells it at retail rates to villagers who use the
phone.

Micro-lenders were ready to call it a "smashing success" if
the phones cleared $2 a day in a nation where incomes average about $200 a
year. But profits per phone already run $5 to $30 a day. "People have
gotten comfortable with technology faster than anyone thought," said Alex
Counts, president of the Grameen Foundation USA in Washington,
D.C.

Grameen expects the cell phone program to expand from 4,000 to
10,000 villages by the end of this year, based largely on the strength of
its network of 7,000 field workers who have worked with Bangladesh
borrowers for years, Counts said.

To be sure, micro-finance alone
won't end world poverty any time soon.

The poor also need better
education, business training, health care and infrastructure, from roads
to electricity. Plus, micro-lenders must "massively scale up services" and
become more profitable to draw in more mainstream investors to expand
their reach, said Anne Ritchie, a micro-finance specialist at the World
Bank's International Finance Corp.

"Only a small fraction of the
world's poor are now being served," Ritchie said.

Yet Dokmo and
practitioners see hope from a growing move among micro-lenders to improve
management and share expertise. And they draw strength despite the odds
from micro-credit successes, such as Bhavna in India or Anastacia Abella
in the Philippines.

Abella, a woman in her 70s nicknamed Lola, or
"grandmother," lived with her four adult children in a shelter made from
scrap materials in a squatter's village in Manila. Frequent blackouts made
kerosene lamps a necessity.

So, Lola and her family sifted through
garbage dumps for jars they'd scrub, fit with wicks and sell for up to 25
cents each. They survived by selling some 150 lamps a day.

Then,
the family obtained a $133 micro-loan, allowing them to buy clean jars
from their neighbors, double their sales, repay the loan and boost their
modest income. "That may not seem like much for our SUV mentality in the
United States," said Daley-Harris, of the Microcredit Summit. "But it does
make a big difference for that family and for those around
them."